Contract with persons of unsound mind

According to the section 10 capacity of the parties to the contract is one of the essential
elements of a valid contract.

Section 11 talks about capacity of contract

According to section 11 everyone is competent to contact except these three kinds of people

1. Minor
2. Person of unsound mind
3. Person disqualified by law

Now you must be thinking who is considered to be unsound mind or sound mind??

To understand who is considered to be sound mind for purposes of entering into a contract we
should read secton 12 of Indian contract.

According to the secton 12 a person is of sound mind if AT THE TIME OF ENTERING

INTO THE CONTRACT he is able to understand the contract and can think rationally.

For example a person is who is totally sane is drunk, Now when is drunk he will not be able
to understand the contract or he may not be able to think rationally about the consequences of
the contract hence he is not competent to enter into the contract when he is drunk.

For example, when is person is totally sane but when he is drunk he will be considered
unsound mind.

What if a person is occasionally a sound mind or occasionally of unsound mind

According to section 12 if a person is generally unsound mind but sometimes he becomes

sound mind in that case he can enter into the contract when he is of sound mind.

Similarly, if a person generally is of sound mind but sometimes he becomes unsound mind in
that case he is not competent to enter into a contract.

We will understand this by a case law

In Inder Singh v. Parmeshwardhari Singh a property worth about Rs. 25,000 was agreed to be
sold by a person for Rs. 7,000 only. His mother proved that he was a congenital idiot,
incapable of understanding the transaction. Holding the sale to be void, Justice Sinha of Patna
High Court stated that "it is not necessary that a man must be suffering from lunacy to disable
him from entering into a contract. A person may, to all appearances, behave in a normal
fashion but at the same time, he may be incapable of forming a judgement of his own as to
whether the act he is about to do is in his interest or not. In the present case he was incapable
of exercising his own judgement"

Now when we have understood about the persons of of unsound mind you must be thinking
that what happens of I enter a contract with a person who is unsound mind?

You should remember All the contract entered with the people of unsound mind are void.

Persons Disqualified by Law

Certain persons are disqualified under some law hence they cant enter into the contract.

Examples

Alien Enemies-

An alien enemy is a citizen , firm or a company belong to a country which is at war with
India. So alien enemy canot enter into any contract with an Indian citizen.Suppose a war is
declared between India and China so now Chinese citizen is now alien enemy for us so they
cant enter into any contract with Indian citizen.

Foreign Sovereigns – One has to be cautious while entering into the contract with foreign
sovereigns because you can enter into the contract with them but cant sue they cannot be
sued without obtaining the prior sanction of the central government.

Insolvent – An insolvent person cant enter into the contract because his liabilities are already
more than the assets.

Convicted Criminals

A convicted criminal canot enter into the contract while undergoing imprisonment. But this
disability comes to an end on the expiry of the sentence.